Under the old scheme of floating currencies a nation in debt crisis, such as Greece today finds itself in, would have had an easy out. It would have devalued the national currency and inflated away the debts. However as part of the Eurozone there is no such easy out for Greece. They must default (and thus lose any future capacity for the government to borrow) or convince the markets that they will reform their economy and be able to pay down their debts. For now they seem to be going for option two. It’s a precarious dance but the straight jacket the euro is now imposing on the Greek government is leading to a set of reforms that a Greek libertarian could previously only have dreamed of. The euro places a limit on such a government, a limit that forces fiscal responsibility, at least eventually. The following article may yet turn out to be too rosy, but it’s refreshing compared to the usual dire perspective.
That the deepest reforms of all are taking place in Greece is only apt for that singularly dysfunctional country. But it’s also proof of what even the most unreformable nation can do. The country is downsizing the number of politicians and civil servants with an administrative reform that slashes the number of municipal governments from 1,034 to 325, and of regional prefectures from 67 to 13. Collective bargaining has been de facto abolished, and companies are now free to set their own wages, which will help Greek companies become flexible and competitive. The massively loss-making state railway company, whose debt alone adds up to 5 percent of Greek GDP, will be overhauled.
Key sectors of the Greek economy, such as transport, tourism, and agriculture, are becoming more open to foreign investment. China is investing $7 billion in Greece’s main port of Piraeus, slated to become Asia’s new hub for all of Southeast Europe. Qatari investors have lined up for real-estate deals that used to be blocked by the bureaucracy. When all the reforms eventually kick in, Greece’s GDP could benefit by as much as 17 percent, estimates Yannis Stournaras, director of the Foundation for Economic and Industrial Research in Athens. Deregulating trucking companies alone, says Stournaras, will generate one extra point of GDP by cutting transport costs, decreasing shipping times, and creating new jobs in the sector. If Stournaras is right, a new growth story is about to emerge from the Hellenic rubble.